India''s public sector banks are in the midst of a perfect storm- at the
center of not one but three storm fronts. The first one is the legacy
of bad loans and stressed assets. The magnitude of this has completely
consumed the attention of the management of most banks. The second
challenge is the eroding competitiveness of our public sector banks
relative to private sector competitors. India''s private sector banks
account for about 25% of lending but over 50% of all profits and a
disproportionately smaller percentage of bad loans and frauds. In
recent months, the share of private sector lending has temporarily
risen to nearly half. What this means is that public sector banks are
systematically losing share and that two of our most profitable and
least risky customers. With the entry of many new players who have
gained banking licenses, the competitive challenge is set to increase
dramatically. The final challenge is that of technology. Globally,
venture capital backed startups are using technology to provide the
services that were historically the remit of banks and are often
providing these services better, faster and cheaper than large legacy
banks. Payments, retail lending, advisory services, are all being
disrupted by fin tech. The risk for banks is that unless they move
quickly, their best customers and most profitable businesses will be
skimmed off leaving them stranded with high cost infrastructure like
branches and ATM networks and the least profitable customers.
At the Bank of Baroda, we are not immune to these storms but we are
better positioned to weather these challenges than many other banks.
Management has taken decisive steps to recognize stressed and
non-performing assets and aggressively deal with these. The main
motivation is to put this crisis behind us so that we can emerge
stronger and be able to focus on future rather than past. This is
absolutely critical so that management can deal with the challenges and
the many opportunities that lie ahead. The Board and I are confident
that the worst is behind us.
The Bank has also undertaken a comprehensive review of all parts of the
business and has evolved a detailed set of plans to fundamentally
reposition the Bank for the future. These plans are intended to create
a more agile and capable organization with better controls and
compliance. Non-core assets will gradually be sold to raise capital.
Management has conducted a detailed review of our business portfolio
and intends to gradually exit unprofitable businesses and segments;
this will improve margins and free up capital that can be deployed in
pursuit of better quality customers and many good business
opportunities that exist. We can expect to see the Bank rapidly return
to historical levels of profitability.
Technology will play a critical role in revitalizing our Bank.
Information is the lifeblood of a bank and banks are increasingly very
sophisticated information processing units. Our Bank has a solid
technology foundation with good infrastructure, core banking system and
good software for communication and collaboration. Importantly, the
Bank has also devoted significant attention to ensuring cybersecurity
and privacy. Over the next few quarters, there will be a significant up
gradation of capabilities in four areas. First, in reengineering and
automating core business processes to enable speed, efficiency and
control. Second, in closing the gap in internet and mobile banking.
Third, in improving our capability in the vital area of big data and
analytics. And finally, in transforming into a more digitally savvy
Bank where increasingly we are digital by default rather than digital
Unquestionably, the most important transformation that we will need to
make is the transformation of our people and organizational capability.
This is central to the success of everything else. This year, the Bank
undertook an employee engagement survey for the first time. The
response has been overwhelming and highlighted a number of critical
areas for improvement. The next three years will see a massive
investment in employee learning, in identifying and accelerating the
development of future leaders and in building organizational capability
in key areas. Finally, this year we began the process of
systematically strengthening our Board and board governance. We are
fortunate to have a number of new Directors who bring much needed
skills in areas such as HR, IT audit and compliance. We are also
augmenting expertise through the appointment of globally respected
experts as advisors to the Board in areas such as IT HR, Risk, and
financial inclusion. We have radically shifted our focus from
transactional matters towards strategy risk and policy issues. I am
optimistic that these changes will gradually bring about a sustainable
improvement in the performance of the Bank.
The past year has been a year of dramatic change at our Bank. It is a
year which has witnessed the induction of private sector executives
into the roles of MD and Chairman. Our stakeholders expect not just an
improvement in results but a metamorphosis of this proud 108 year old
institution into a contemporary Bank that uniquely combines the trust
of public sector banks with the innovation and performance of the
leading private sector banks. This is the mission that we have
undertaken and are focused on.